Blockchain active user metrics can be easily skewed, and shouldn’t be relied on to gauge the health of a blockchain project, says blockchain analytics firm 0xScope.
Active user count can be a misleading metric for measuring the state of a crypto ecosystem as a small group of users can generate a significant portion of activity across multiple wallets, argues the co-founder of a blockchain analytics provider.
0xScope’s co-founder and chief data scientist, Philip Torres, told Cointelegraph amid the Bitget EmpowerX Summit that between monopolistic founding entities, bots, exploiters and— as much as 80% of blockchain activity can be generated by just a small number of entities — despite looking healthy on the outside.
“These projects make a claim such as ‘we have 10,000 active users’ — well, we find out using the entity model that you have about 10 to 20 different users that are controlling 10,000 different addresses,” he added.“The way they operate on-chain is that one single person can have 10,000 addresses or more, and then it would seem to the outside observer as if those were 10,000 different people,” Torres explained.
“One of them can be explained easily as ‘privacy concerns.’ People like to have different addresses just to not leave a big enough footprint out there,” he explained.“So when we see automatic trading on-chain, usually each address is very focused on a different protocol or different swap, or trading different coins or trading different coins using different strategies.”
However, it has also been used for malicious purposes such as inflating a project’s active user numbers to mislead potential investors, creating a Sybil attack also known as a 51% attack or users trying to game an upcoming token airdrop.
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